Emerging market debt bumped higher by high equities, U.S. data; GS Caltex issues new debt

By Reshmi Basu and Paul Deckelman

New York, April 17 - Emerging market debt extended gains Tuesday as U.S. stocks advanced, bolstered by U.S. economic data and upbeat earnings reports.

In the primary market, South Korean oil refinery GS Caltex Corp. sold a $500 million offering of 10-year notes (Baa1/BBB+) at 98.701 to yield a spread of Treasuries plus 98 basis points.

The deal came at the tight end of guidance, which was cut to 98 to 99 basis points more than Treasuries from 100 basis points.

The deal saw more than $1.5 billion in orders.

Barclays Capital, Deutsche Bank, Citigroup and Goldman Sachs were lead managers for the Rule 144A and Regulation S transaction.

In other primary developments, South African gaming and lodging firm, Peermont Global, has set price talk on its ZAR 5.866 billion equivalent two-part bond offering.

Peermont Global's ZAR 4.979 billion equivalent euro-denominated seven-year senior secured notes (B3/B) are talked at the 7 7/8% area. The deal size, on an exchange adjusted basis, is approximately €520 million, according to the source. The seven-year secured notes come with three years of call protection.

Meanwhile Peermont Global II (Pty.) Ltd. has set talk for its ZAR 887 million offering of eight-year senior PIK notes at 18% to 18¼%. The non-rated PIK notes become callable in three years at 102.0.

Citigroup is the bookrunner for the Rule 144A/Regulation S deal.

According to a market source, Peermont is considered an emerging markets issuer. However the notes will be marketed to both emerging markets and high yield accounts.

EM firmer on U.S. data

Back to trading, emerging market bonds moved up in secondary dealings pretty much in all markets, traders said, encouraged by relatively tame inflation numbers released by the United States - which in turn suggest that the Federal Reserve could have less need to raise interest rates.

That data spurred a rally in U.S. Treasury issues, and while emerging bonds "lagged Treasuries on the cash side, for the most part" a New York-based trader in Asian debt observed, "that's probably masking the fact that the market is trading with a very, very good tone.

"Certainly from the perspective of Asia, the market feels incredibly solid. We're seeing super-constructive flows."

Earlier in the Asian trading session, Asian credits were spotted firmer although there was some profit-taking in sovereigns such as Indonesia and the Philippines. Flows were mixed, mostly dealer-led, according to a market source.

On the high-yield side, Chinese property names recorded tighter spreads despite news of fresh supply from China Properties Group Ltd.

The Shanghai-based developer is expected to launch a $300 million offering of seven-year notes later this week via Merrill Lynch & Co.

The notes will come will come with four years of call protection.

Sovereigns trading well

Returning to the New York session, the trader said that EM sovereign issues were "trading very, very well.

"We're seeing a lot of buying of corporate (EM) high yield, especially in Asia and to a lesser extent, here [in New York], and a fair amount of bank capital buying. So there's a very, very good tone to the market overall."

The most actively traded Asian instruments, the 5-year CDS contracts on Philippine and Indonesian sovereign bonds, were at "all time tights" versus U.S. Treasuries, with the Philippine contracts quoted at 108-110 bps over and Indonesia at 107-110.

"We did try to pull back a little bit late in the session in Asia today [Tuesday], but we've clawed all of that back" in subsequent New York dealings. "It does feel like the momentum is on the tightening side."

In Asian-based corporate issues, he said that the new $500 million GS Caltex 10-year bonds "priced a couple of basis points inside original talk. It's a pretty well-defined curve for that name."

He said that for "repeat Korean issuers" like Caltex, "their curves are so well-established now. It's a very transparent market, it's pretty well defined, so new issues just come on the curve and typically are pretty well behaved. So it priced on the curve and just stayed around [that] level," at 98 bps bid, 96 bps offered over 10-year Treasuries.

The same firm tone was seen in the Latin American markets, where Brazil's widely traded benchmark bonds due 2040, were quoted at a new all-time high, at 135.55, up from 135.20 on Monday, while its yield tightened by 4 bps to 5.60%.

At the shorter end of the curve, Brazil's global bonds due 2015 moved up to 114.40 from 114.08 on Tuesday, while the bonds' yield narrowed to 5.55% from 5.60% previously.

Elsewhere, Mexico's global bonds due 2015 rose to 107.85 from 107.66 previously. Ecuador's benchmark notes due 2030 continued to firm, tightening to 5.96% from 6.02% on Monday.

Ecuador's bonds - the strongest-performing EM instruments so far this year, returning over 26% year-to-date - appear to be riding the crest of two waves - both the overall higher emerging markets momentum, as well as investor optimism that the big referendum victory notched by president Rafael Correa in the weekend plebiscite on convening a national assembly to re-write the country's constitution will not adversely impact Quito's ability - or willingness - to honor its debt obligations, the bombastic anti-banker electoral rhetoric from Correa and officials of his government aside. They noted, for instance, that despite the harsh words which candidate Correa had for global lenders such as the International Monetary Fund during last fall's election, Ecuador just paid down the final $40 million that it owed to the IMF without incident.

Peru up, Argentina, Venezuela down

Meanwhile Peru also had a winning session Tuesday. Its bond due 2033 moved up 0.95 to 133 bid, 133.45 offered,

However Argentina bucked the trend as it underperformed the asset class, particularly as its long end of the curve was hit, noted another source.

The longer-dated discount bond due 2033 eased 1.20 to 109.50 bid, 110 offered while the par step-up bond due 2038 gave up 0.50 to 48.60 bid, 49 offered.

Along the front and middle of the curve, there was better demand seen for such issues as the Bonar bond due 2011. During the session, 2011 Bonar was higher by 0.25 to 99.95 bid, 100.15 offered.

Elsewhere, high beta credit Venezuela also could not keep pace with overall benchmarks as it emerged as one the session's losers along with Argentina. The Venezuelan bond due 2027 lost 0.65 to 122.65 bid, 122.95 offered.

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